Amazon goes Hollywood

FORTUNE — Can Amazon do to Hollywood what it has done to the publishing and retailing industries? Two years ago Jeff Bezos & Co. launched Amazon Studios, which aims to compete with traditional production companies by developing feature-length films and television series — with a distinctly Amazonian twist: Scripts and pitches are uploaded online, and may be evaluated and commented on by the public.

Roy Price, director of Amazon Studios and a former Disney DIS executive, believes Amazon’s crowd-sourcing approach is a much more efficient way to make films and shows than the way media companies do it today (invest big dollars in A-list screenwriters, directors, and stars, and hope all that talent produces blockbusters). “By and large, your $80 million is out the door,” he says of his rivals’ approach. “You’re certainly not going to be able to unmake the movie and go make a different movie that people want to see.”

Of course, Amazon Studios has yet to prove that its more democratic approach to filmmaking can work. It currently has 22 movies and 12 TV series in the early stages of review and development, though none have reached the point of being filmed. Several members of the Hollywood community have embraced the idea. Hellraiser creator Clive Barker was tapped by the studio to rewrite the script for an action-horror flick called Zombies vs. Gladiators. Several studio execs and writers have signed on to help assess the commercial viability of projects.

Amazon AMZN isn’t the only tech company pursuing the small screen. Netflix NFLX is creating original shows for its Watch Instantly streaming service, and Microsoft MSFT reportedly is looking to develop shows for delivery on its Xbox gaming platform. Amazon’s endgame is broader. While its TV shows are meant to be delivered via Amazon’s online video service, which competes with Hulu and Netflix, Amazon aims to have its movies distributed in traditional movie theaters, thus capturing a sliver of Hollywood’s profits.

Media moguls aren’t exactly quaking in their boots. One studio executive called Amazon Studios “cute” and questioned the wisdom of the upstart’s crowd-sourcing model. But the movie industry shouldn’t ignore Amazon’s fledgling effort, as retailers like Borders and Circuit City initially did. Talk about a script with an unhappy ending.

Amazon vs. Hollywood

Emma Stone in Easy A

How Amazon Studios compares to the development process for the movie Easy A

Two years ago, Jeff Bezos & Co. set out to make feature-length films and change the way they get made. While only a small group of people will eye a traditional script before it reaches the theater, literally anyone who visits Amazon Studios’ web site can evaluate and comment on a project. To illustrate just how different the process can be, here’s how it stacks up against the production of the 2010 teen comedy, Easy A, starring Emma Stone.

Amazon Studios

A writer uploads an original movie script online. No agent required.

Over the course of 45 days, anyone who logs onto amazonstudios.com can review the script and comment. Alternatively, writers can also opt to have the Amazon Studios team review their work privately. During this time, the writer can’t shop their script around to other studios.

Writers can revise their scripts based on public feedback. Uploading changes however extends their exclusivity agreement with Amazon by another 45 days.

After 45 days, Amazon will make one of three decisions: purchase the script outright for $200,000, pay $10,000 to extend the window of evaluation, or decline.

Purchased scripts are added to the studio’s development slate and made into test movies, often made up of photo montages or animated sequences with audio tracks. Site visitors can view these and offer more criticism. For Roy Price, director of Amazon Studios, this phase is key. “If you see that the audience is not really in love with this lead character, that’s really really helpful to know,” he says.

If and when Amazon Studios approves a project for production, the Los Angeles-based production arm will start filming. The company has 22 film projects in the early stages of review and development, though none have reached the point of being filmed.

Eventually, the movie will be distributed to traditional theaters. If it makes more than $60 million at the U.S. box office, the writer will receive another $400,000.

Easy A

First-time movie scribe Bert Royal wrote Easy A in 2009. Partly-inspired by The Scarlet Letter, the film trails a female high school student who fakes her way to notoriety by pretending to sleep around. Royal’s agent sent the script out to producers for review. “The producers are sort of a way into the studios,” explains Royal.

The first few days of shopping around the script proved intense. “You’re getting ‘yeses’ and ‘no’s’ left and right,” says Royal, who recalls one unnamed studio who gave him a stinging rejection. “‘No one will ever want to watch a teen sex movie from the perspective of a girl,’ they told me. That made me even more driven to sell it.”

Producer Zanne Devine submitted the script to the Sony Pictures-owned production company Screen Gems for consideration. Two months after Royal started shopping his script around, Screen Gems bought the rights for a lump sum. He won’t disclose the exact amount but says it is comparable to the $200,000 Amazon Studios pays screenwriters.

Clint Culpepper, President of Screen Gems, told Royal his R-rated script should be revised for a PG-13 audience. Though none of the scenes were dropped, dialogue was toned down: Talk about sex was rewritten to be less frank and 47 “f” words whittled down to 0. An alternative R-rated version was still filmed but never distributed.

With feedback from Emma Stone and director Will Gluck, the script was continually tweaked until the last day of production nine months later.

Easy A premiered in September 2010 and would eventually gross nearly $75 million worldwide.

To this day, Royal still receives residual payments. “Over time, it has been an incredibly beautiful gift — the gift that keeps on giving,” he half-jokes. “I bought my first house with it.”

A shorter version of this story appeared in the December 3, 2012 issue of Fortune.